In this article, we discuss three ways you can improve cash flow in your business. By following these tips, you’ll be able to keep your business running smoothly and avoid a cash flow crunch!
Collect From Your Customers
The first way to improve cash flow in your business is by collecting accounts receivable quickly. This means invoice your customers as soon as the product is sold or service delivered. And, then, follow up with them until payment is received. Many businesses make the mistake of waiting too long to invoice their customers, which can often lead to delayed payments or even non-payment. By invoicing your customers quickly, you will be able to ensure that you are paid in a timely manner.
Setting credit terms upfront for customers can also help. Do this by requiring a deposit upfront or by offering a small discount for early payment. By setting these credit terms, you’re able to encourage your customers to pay their invoices quickly, which will improve your cash flow.
Slow Down Paying Vendors
The second way to improve cash flow in your business is by slowing down the payment of accounts payable. This means that you should not pay your bills until they are due. Many businesses make the mistake of paying their bills as soon as they receive them, which can often lead to cash flow problems. By waiting to pay your bills until they’re due — but not late — you’ll be able to keep more cash in your bank.
Follow the 80/20 Rule for Inventory
The third way to improve cash flow in your business is by selling through your inventory. This means that you should only purchase the inventory you need and sell any excess inventory that you have.
Ask yourself what 20 percent of your products generate 80 percent of your sales, and seek to always have these available for sale. Only purchase the other items that generate the other 20 percent of sales on an as-needed basis.
Many businesses, especially new retail or supply companies, make the mistake of purchasing too much inventory or holding on to too much inventory, which can tie up a lot of cash.
And, if you find that you do have excess inventory, consider selling it off at a discount. This will help you to free up some cash flow. By selling your excess inventory and tracking your sales on the items customers want you’ll have good data. Use that data on what you sell the most to get inventory off your shelves so that it’s not clogging up your cash flow.
By following these three tips, you’ll improve cash flow in your business and avoid a cash flow crunch and any financial disasters! You’ll also mitigate any negative impacts of inflation.